The Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted in December 2019, brings several changes to retirement planning and accounts. Here’s an in-depth look at key provisions and how they may affect individuals:
Required Minimum Distribution (RMD) Age Increase:
- Before the SECURE Act: Individuals were required to start taking RMDs from their retirement accounts at age 70½.
- After the SECURE Act: The RMD age was raised to 72. This allows individuals to delay withdrawals, potentially allowing their retirement savings to grow for a longer period before distributions become mandatory.
Elimination of Age Limit for Traditional IRA Contributions:
- Before the SECURE Act: Individuals were not allowed to contribute to a traditional IRA after reaching the age of 70½.
- After the SECURE Act: The age limit for traditional IRA contributions has been eliminated, enabling individuals to continue contributing as long as they have earned income.
Changes to Inherited Retirement Accounts:
- Before the SECURE Act: Non-spouse beneficiaries could “stretch” inherited IRA distributions over their lifetimes.
- After the SECURE Act: In most cases, non-spouse beneficiaries are required to withdraw the entire inherited retirement account within 10 years. Exceptions apply to certain eligible beneficiaries, such as surviving spouses, minor children, and individuals with disabilities.
Penalty-Free Withdrawals for New Parents:
- After the SECURE Act: Parents can take penalty-free withdrawals of up to $5,000 from retirement accounts for qualified expenses related to the birth or adoption of a child. While the withdrawal is penalty-free, regular income taxes still apply unless the funds are repaid to the retirement account.
Long-Term Part-Time Employees and 401(k) Eligibility:
- After the SECURE Act: Long-term part-time employees who work at least 500 hours in three consecutive years are now eligible to participate in their employer’s 401(k) plan.
Lifetime Income Options:
- The SECURE Act encourages employer-sponsored retirement plans to offer lifetime income options, such as annuities, providing retirees with more choices for generating a steady stream of income in retirement.
529 Plan Expansions:
- After the SECURE Act: 529 education savings plans can be used to pay for registered apprenticeships and up to $10,000 in qualified student loan repayments.
It’s essential for individuals to consider these changes in the context of their own financial situations, retirement goals, and estate planning. Consulting with Matthew Jennings, JD, MBA, EA, RFC®, CEP®, CES™, aka Tax King Matt can help you in developing strategies that align with these new provisions and optimize retirement planning efforts. Additionally, staying informed about updates in tax laws and retirement regulations is crucial for making informed decisions about your financial future.